I was initially hired by MR in 2005 for what was supposed to be a short-term assignment assisting the firm with day-to-day financial operations. A few months in, I received an offer for a full-time position as CFO. With a preference for working with small companies and an interest in design, I gladly accepted. As I grew into the new role, I began to look at ways to streamline some of the firm’s practices. In doing so, I realized there were changes that could be made that might bolster our financial success and better support the overall wellbeing of the company.
While many of our processes have evolved in the twenty years since I started with MR, one that has most positively impacted us was the implementation of an hourly fee for decor services. It is typical for designers to charge a flat or hourly design fee in addition to a handling fee (a handling fee is the markup on the net cost of goods sold to the client), but prior to my arrival, our billing model for decor services was handling fee-only. There were several downsides for MR to the handling fee-only billing model. First and foremost, it hampered cash flow. When we were only charging a handling fee for decorative services, aside from the retainer, we were only paid when the client agreed to purchase the items we sourced, regardless of the amount of time involved. While the decor team was designing furniture plans, creating color palettes and sourcing all manner of furnishings, our revenue was zero and the team was being paid out of pocket. The second issue with this fee structure is that we would only be paid if the client were to go ahead with the purchases. It didn’t happen often, but there were cases when, after several months of sourcing, designing, researching, editing, etc., the client put the project on hold, and we were paid nothing for the work we completed. This happened once when a client had us source multiple rooms of furniture from one of the most expensive custom shops in the country, only to back out of the purchases entirely. Aside from the financial loss, there was a negative impact on company morale. A great deal of energy and enthusiasm went into sourcing those items, so it was truly a letdown not to see the project fully come to life, and on top of that, to not be compensated for any of the work. With hourly billing, regardless of whether or not a client moves forward with any of the decor package, the firm is compensated for the time and effort of its designers.
Another downside to handling fee-only billing comes up at the end of a project, when clients request that we ‘style’ the space to give it a more polished and cohesive look. This is an opportunity for us to finish the interior with a final layer of objects and accessories in preparation for photography which we will use in our portfolio and to pitch to editors for publication. Through styling, we are able to control the way a project is presented to the public, by sourcing pieces that are true to the project’s essence. This phase includes researching and purchasing items such as books, pillows, decorative objects and tabletop goods, many of which have a fairly low price point. Because this phase is so specific, it is often the most labor-intensive part of the decor process. With the handling fee-only model, the service was only profitable when we included enough high-priced items to generate a fee that would subsidize the less expensive items. What often happened, however, was that the client would reject the more expensive items and request less expensive substitutes, which lead to more time being spent for a lower fee. Billing hourly solves this problem by compensating us for the many hours we typically put in when our handling fee is minimal. It also benefits the client as we are able to select a larger quantity of reasonably priced items for a more comprehensive styling package, still keeping the overall cost down.
Finally, billing hourly for design encourages efficiency—for MR and for the client. We never want to send a client an unexpectedly large bill, especially at the start of working with them, so we are always conscious of the time we dedicate to a project. For the clients, knowing that they will be billed hourly for the time spent sourcing goods tends to keep them focused on using our time efficiently. This also prevents a project timeline from increasing unnecessarily.
The solution to many of these adverse scenarios is to bill clients hourly while designers are designing (and for all work related to styling) and to collect a handling fee on the goods that are purchased. There are benefits for both the firm and for the client, and overall, it creates a more streamlined and efficient process. While there are many ways that a design firm can bill for interiors work, the key to success is to ensure that you are being fairly compensated.